> For the complete documentation index, see [llms.txt](https://docs.pawnfi.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.pawnfi.com/risk/risk-framework/lending-market-liquidity-risk/interest-rate-model.md).

# Interest Rate Model

Pawnfi’s interest rate strategy is calibrated to manage liquidity risk and optimize utilization. The borrow interest rates come from the Utilization Rate U.

U is an indicator of the availability of capital in the pool. The interest rate model is used to manage liquidity risk through allocating user incentivizes to support liquidity:

* When capital is sufficient: low interest rates to encourage loans.
* When capital is scarce: high interest rates to encourage repayments for loans and additional supplies.

## **Normal Model**

The supplying rate's calculation depends on something called an **interest rate model** — the algorithmic model to determine a money market's demand and supply rates.

This interest rate model takes in two parameters:

* Base rate per year, the minimum borrowing rate
* Multiplier per year, the rate of increase in interest rate with respect to utilization

**Borrow Rate**

\= Base + Multiplier x Utilization Rate

**Supply Rate**

\= Borrow Rate x (1-Reserve Factor) x Utilization Rate

## Jump Rate Model

Liquidity risk materializes when utilization is high, its becomes more problematic as U gets closer to 100%. To tailor the model to this constraint, some markets follow what is known as the "Jump Rate model”. This model has the standard parameters:

* Base rate per year, the minimum demand rate
* Multiplier per year, the rate of increase in interest rate with respect to utilization

but it also introduces two new parameters:

* Kink, the point in the model in which the model follows the jump multiplier
* Jump Multiplier per year, the rate of increase in interest rate with respect to utilization after the "Kink"

**Borrow Rate**

\= Base + Multiplier x Min(Utilization Rate, Kink) + Jump Multiplier x Max(Utilization Rate - Kink, 0)

**Supply Rate**

\= Borrow Rate x (1-Reserve Factor) x Utilization Rate

{% hint style="info" %}
Currently all the token markets are designed as Jump Rate Model.
{% endhint %}

## Latest Interest Rate Table

<table><thead><tr><th width="222">Name</th><th>Symbol</th><th width="184">Interest Rate Model</th><th>Base</th><th width="109">Multiplier</th><th>Kink</th><th width="107">Jump Multiplier</th><th>Reserve Factor</th></tr></thead><tbody><tr><td><strong>Mainstream Coins</strong></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Tether USD</td><td>USDT</td><td>Jump Rate Model</td><td>0%</td><td>5%</td><td>80%</td><td>109%</td><td>7.5%</td></tr><tr><td>USD Coin</td><td>USDC</td><td>Jump Rate Model</td><td>0%</td><td>5%</td><td>80%</td><td>109%</td><td>7.5%</td></tr><tr><td>DAI</td><td>DAI</td><td>Jump Rate Model</td><td>0%</td><td>5%</td><td>80%</td><td>109%</td><td>15%</td></tr><tr><td>Ethereum</td><td>ETH</td><td>Jump Rate Model</td><td>2%</td><td>18%</td><td>80%</td><td>100%</td><td>20%</td></tr><tr><td>Wrapped BTC</td><td>WBTC</td><td>Jump Rate Model</td><td>2%</td><td>22.5%</td><td>80%</td><td>100%</td><td>20%</td></tr><tr><td>Lido Staked Ethereum</td><td>stETH</td><td>Jump Rate Model</td><td>2%</td><td>18%</td><td>75%</td><td>100%</td><td>20%</td></tr><tr><td>Staked Ape Coin</td><td>sAPE</td><td>N/A</td><td>N/A</td><td>N/A</td><td>N/A</td><td>N/A</td><td>N/A</td></tr><tr><td><strong>P-Tokens</strong></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Bored Ape Yacht Club</td><td>P-BAYC</td><td>Jump Rate Model</td><td>2%</td><td>22.5%</td><td>70%</td><td>150%</td><td>20%</td></tr><tr><td>Mutant Ape Yacht Club</td><td>P-MAYC</td><td>Jump Rate Model</td><td>2%</td><td>22.5%</td><td>70%</td><td>150%</td><td>20%</td></tr><tr><td>Bored Ape Kennel Club</td><td>P-BAKC</td><td>Jump Rate Model</td><td>2%</td><td>22.5%</td><td>70%</td><td>150%</td><td>20%</td></tr><tr><td>Azuki</td><td>P-AZUKI</td><td>Jump Rate Model</td><td>2%</td><td>22.5%</td><td>70%</td><td>150%</td><td>20%</td></tr></tbody></table>